The productivity trend in Iran Evidence from manufacturing firms

Iran has been experiencing slow growth for the past ten years. Using plant-level information, we show that on average firm-specific productivity in manufacturing sectors declined at the rate of 2.6% annually, while large top decile firms experienced a modest growth in productivity between 2005 and 2011. We decompose this trend and find that within-plant variation is its main driving force while the between firms and industries component is insignificant. We test several alternative explanations that may contribute to these negative trends. We show that the subsidy reform had a negative effect, while privatization seems to have had no effect. Private management not affected productivity growth, while firm size is associated with higher productivity growth. Also, we find that productivity growth decreases with the energy intensity of the firm. We also find that R&D expenditures significantly increase productivity growth, while the R&D sales ratio is about 0.5% in manufacturing sectors, which is about one-fifth of the world average. A one-percent point increase in R&D expenditures increases productivity growth by 0.5%.